Circuit breakers were introduced in the United States after the 1987 stock-market crash.
The crash exposed how quickly automated and human selling could overwhelm trading systems. In response, U.S. regulators adopted mechanisms designed to pause trading after unusually large market declines. These pauses give investors time to absorb information and allow exchanges to address order imbalances.
The modern system is commonly called the market-wide circuit breaker system. It uses percentage thresholds based on the previous day’s closing value of the S&P 500. A Level 1 decline can trigger a 15-minute halt during regular trading, while larger declines can produce longer suspensions or close the market for the day. The exact thresholds and rules have changed over time.
Circuit breakers do not prevent losses or guarantee a recovery. They temporarily interrupt trading. They are also different from individual stock volatility pauses, which apply to a single security rather than the entire U.S. equity market.